An Experiment of the Fathers in State Socialism

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AN EXPERIMENT OF THE FATHERS IN
STATE SOCIALISM

M. M. Quaife

The rapid advance of recent years along the pathway of
state socialism has commonly been regarded as a new phenom-
enon in American life, as, indeed, in many respects it is.
Curiously enough, however, one of its most advanced and
recent manifestations, the entrance of the government upon
the field of retail merchandising with a view to controlling
prices in the supposed interest of the general public as opposed
to the machinations of a set of grasping middlemen, closely
repeats in many particulars a notable and now long-forgotten
experiment of the United States government in the field of
retail trade a century and more ago. Some account of the
hopes entertained by the governmental authorities who ini-
tiated the enterprise and their disappointment as the result of
actual trial may afford entertainment and mayhap even profit
to readers in the present juncture of public affairs.

The ancient experiment of the government in retail mer-
chandising was designed, like the recent one, to lower the cost
of living and promote the contentment of mind of the public
in whose interest it was instituted. Instead of citizens of the
United States, however, that public consisted of an alien and
inferior race, the red men along our far flung frontier. The
origin of the policy of governmental trading houses for the
Indians dates from the early colonial period. In the Ply-
mouth and Jamestown settlements all industry was at first
controlled by the commonwealth and in Massachusetts Bay
the stock company had reserved to itself the trade in furs be-
fore leaving England. In the last-named colony a notable
experiment was carried on during the first half of the eight-
eenth century in conducting "truck houses" for the Indians.

278 M. M: Quaife

About the middle of the century Benjamin Franklin, whose
attention had been called to the abuses which the Indians of
the Pennsylvania frontier were suffering at the hands of
private traders, investigated the workings of the Massachu-
setts system and recommended the establishment of public
trading houses at suitable places along the frontier.

The first step toward the establishment of a national
system of Indian trading houses was taken under the guidance
of the ommiscient Franklin during the opening throes of the
American Revolution. To the second Continental Congress
the establishment of friendly relations with the Indians
appeared a matter of "utmost moment." Accordingly it was
resolved July 12, 1775 to establish three Indian trading
departments, a northern, a middle, and a southern, with
appropriate powers for supervising the relations of the
United Colonies with the Indians. In November of the same
year a committee, of which Franklin was a member, was
directed to devise a plan for carrying on trade with the
Indians and ways and means for procuring the goods for it.

Acting upon the report of this committee Congress
adopted a series of resolutions outlining a general system of
governmental supervision of the Indian trade and appropriat-
ing the sum of 40,000 pounds to purchase goods for it. These
were to be disposed of by licensed traders, acting under in-
structions laid down by the commissions and under bond to
them to insure compliance with the prescribed regulations.
The following month Congress further manifested its good
intentions toward the native race by passing resolutions ex-
pressing its faith in the benefits to accrue from the propaga-
tion of the gospel and the civil arts among the red men and
directing the commissioners of Indian affairs to report upon
suitable places in their departments for establishing school-
masters and ministers of the gospel.

The exigencies of the war, absorbing all the energies of the
new government, soon frustrated this new plan, and not until

An Experiment in State Socialism 279

1786 was a systematic effort made to regulate the Indian
trade. In that year the Indian department was divided into
two districts, a superintendent and a deputy being appointed
for each. They were to execute the regulations of Congress
relating to Indian affairs. Only citizens of the United States
whose good moral character had been certified by the governor
of a state were eligible to licenses ; they were to run for one year
and to be granted upon the payment of fifty dollars and the
execution of a bond to insure compliance with the regulations
of the Indian department. To engage in trade without a
license incurred a penalty of five hundred dollars and for-
feiture of goods.

This was, apparently, a judicious system, but the govern-
ment of the Confederation had about run its course and the
general paralysis which overtook it, together with the confu-
sion attendant upon the establishment of the new national
government, prevented the new policy toward the Indians
from being carried into effect. Prominent among the prob-
lems which pressed upon the new government for solution was
the subject of Indian relations and in this connection the
question of the regulation of the Indian trade. In 1790 the
licensing system of 1786 was temporarily adopted, shorn of
some of its more valuable features, however. There was no
prohibition against foreigners, and no license fee was re-
quired. This system was continued without essential change
until 1816, when an act was passed prohibiting foreigners
from trading with Indians in the United States except by
special permission of the president and under such regula-
tions as he might prescribe.

The young government shortly entered upon the most
serious Indian war in all its history and not until one of its
armies had been repulsed and another destroyed did Anthony
Wayne succeed in extorting from the hostile red men a
recognition of the government he represented. At the close
of this war Congress, at the instigation of Washington,

280 M. M. Quaife

determined to experiment with another system of conduct-
ing the Indian trade. In the session of 1795, stirred up by the
repeated recommendations of Washington, that body debated
a bill for the establishment of Indian trading houses. Though
the bill was defeated at this time its purpose as stated by its
supporters is worth noting. It was regarded as constituting
a part only of a comprehensive frontier policy; this policy
embraced the threefold design of the military protection of
the frontier against Indian invasions, the legal protection of
the Indian country against predatory white incursions, and
the establishment of trading houses to supply the wants of the
Indians and free them from foreign influence. It was believed
that these three things embraced in one system would bring
about the great desideratum, peace on the frontier; but that
without the last the other parts of the plan would prove
totally ineffectual.

The defeat of the advocates of the system of government
trading houses in 1795 was neither final nor complete. Their
principal measure had failed of passage, but at this same
session Congress appropriated the sum of fifty thousand
dollars to begin the establishment of public trading houses,
and two were accordingly started among the Cherokee,
Creeks, and Chickasaw of the Southwest. The next year a
second act was passed, carrying an appropriation of one
hundred and fifty thousand dollars in addition to an annual
allowance for the payment of agents and clerks. The presi-
dent was authorized to establish trading houses at such places
as he saw fit for carrying on a "liberal trade" with the Indians.
The agents and clerks employed were prohibited from engag-
ing in trade on their own account and were required to give
bonds for the faithful performance of their duties. The act
was to run for two years, and the trade was to be so conducted
that the capital sum should suffer no diminution.

Until 1803, however, nothing was done to extend the
system of trading houses thus experimentally begun in

An Experiment in State Socialism 281

1795. In the debates over the passage of the act of
1796 it was made evident that even the supporters of the
measure regarded it in the light of an experiment. The
recent war had cost one and a half million dollars annually;
it was worth while to try another method of securing peace on
the frontier. Since the Canadian trading company was too
powerful for individual Americans to compete with success-
fully, the government must assume the task. If upon trial
the plan should prove a failure it could be abandoned. On
the other hand it was objected that public bodies should not
engage in trade, which was always managed better by in-
dividuals; fraud and loss could not be guarded against; nor
should the people be taxed for the sake of maintaining trade
with the Indians. In spite of these objections and prophecies,
the report of 1801 showed that the original capital had suffered
no diminution, but had, in fact, been slightly increased; this,
too, despite losses that had been incurred through the failure
of the sales agent, to whom they had been assigned, to dispose
of the peltries before many had become ruined.

In January, 1803 the powerful influence of President
Jefferson was put behind the development of the government
trading house system. He stated in a message to Congress
on the subject that private traders, both domestic and foreign,
were being undersold and driven from competition; that the
system was effective in conciliating the goodwill of the
Indians; and that they were soliciting generally the establish-
ment of trading houses among them. At the same time the
Secretary of War reported the establishment of four new
stations at Detroit, Fort Wayne, Chickasaw Bluffs, and
among the Choctaw, to which the remainder of the money
appropriated in 1796 had been applied. This remained the
number until 1805, when four more were established at
Arkansas on the Arkansas River, at Nachitoches on the Red
River, at Belle Fontaine near the mouth of the Missouri, and
at Chicago. The following year a trading house was estab-

282 M. M. Quaife

lished at Sandusky on Lake Erie, and in 1808 three more at
Mackinac, at Fort Osage, and at Fort Madison. Meanwhile
the two original houses had been removed to new locations and
two others, those at Detroit and at Belle Fontaine, had been
abandoned.

From 1808 until the beginning of the War of 1812 there
were thus twelve factories in operation. At each was stationed
an agent or factor and at most an assistant or clerk as well.
Tiie salaries of the former prior to 1810 ranged from $750
to $1,250, in most cases not exceeding $1,000 ; the pay of the
latter from $250 to $650 ; in both cases subsistence was granted
in addition. In 1 810 the superintendent of the trade estimated
that of the total amount of $280,000, which had been invested
in the business, $235,000 still remained ; the loss in the capital
invested to this date was therefore, in round numbers, $45,000.
The four-year period ending in 1815, on the other hand, in
spite of the disturbance to trade which attended the operations
of the War of 1812, produced a profit of $60,000. Approxi-
mately three-fourths of this gain was swallowed up in the
destruction during the war of the factories at Chicago, Fort
Wayne, Sandusky, Mackinac, and Fort Madison; however
this was the fortune of war and not in any way the fault of
the system.

Upon the conclusion of peace with Great Britain in 1815
fresh plans were laid for the extension of the department of
Indian trade. Although the territory northwest of the Ohio
River had been ceded to the United States by the Treaty of
Paris of 1783, down to the War of 1812 American sovereign-
ty had been but imperfectly established over much of this
region. Even the limited measure of control which had been
gained prior to 1812 was largely lost during the war, and the
British diplomats strove earnestly at Ghent to render this
loss permanent by erecting south of the lakes an Indian barrier
state which should forever protect the English in Canada
from the advancing tide of American settlement. This effort

An Experiment in State Socialism 283

failed, however, and the War Department moved promptly
to the establishment of American authority in the Northwest.

The restoration and extension of the system of govern-
ment trading houses was an integral part of the program ; and
hand in hand with the rebuilding of forts or the founding of
new ones at such points as Mackinac, Green Bay, Chicago,
and Prairie du Chien went the establishment of factories at
the points of greatest strategic importance. The system
continued in operation until the summer of 1822 when in
response to a vigorous campaign waged by Senator Benton
against it, it was suddenly abolished. To the reasons for this
action and a consideration of the failure of the system our
attention may now be turned.

The government trading-house system had been estab-
lished under the influence of a twofold motive. The primary
consideration of the government's Indian policy was the main-
tenance of peace on the frontier. This could best be accom-
plished by rendering the Indian contented and by freeing him
from the influence of foreigners. Not merely his happiness,
but his very existence depended upon his securing from
the whites those articles which he needed but which he him-
self could not produce; and since the private traders took
advantage of his weakness and ignorance to exploit him
outrageously in the conduct of the Indian trade, it was argued
that the welfare of the Indian would be directly promoted and
indirectly the peace of the frontier be conserved by the
establishment of government trading houses upon the prin-
ciples that have been indicated.

The theory underlying the government factory system
seemed sound, but in practice several obstacles to its successful
working, powerful enough in the aggregate to cause its aban-
donment, were encountered. Not until 1 81 6 was an act passed
excluding foreigners from the trade, and even then such ex-
ceptions were allowed as to render the prohibition of little
value. The amount of money devoted to the factory system

284 M. M. Quaife

was never sufficient to permit its extension to more than a
small proportion of the tribes. However well conducted
the business may have been, this fact alone would have pre-
vented the attainment of the larger measure of benefit that
had been anticipated.

Another and inherent cause of failure lay in the difficulty
of public operation of a business so special and highly com-
plicated in character as the conduct of the Indian trade.
Great shrewdness, intimate knowledge of the native character,
and a willingness to endure great privations were among the
qualifications essential to its successful prosecution. The
private trader was at home with the red men ; his livelihood
depended upon his exertions ; and he was free from the moral
restraints which governed the conduct of the government
factor. Above all he was his own master, free to adapt his
course to the exigencies of the moment; the factor was
hampered by regulations prescribed by a superintendent who
resided far distant from the western country; and he, in turn,
by a Congress which commonly turned a deaf ear to his
repeated appeals for amendment of the act governing the
conduct of the trade. The factor's income was assured regard-
less of the amount of trade he secured ; nor was he affected by
losses due to error of judgment on his part, as was the private
trader. Too often he had at the time of his appointment no
acquaintance with the Indian or with the business put in his
charge. To instance a single case : Jacob Varnum at the time
of his appointment to the Sandusky factory was a native of
rural New England, who had neither asked nor desired such
an appointment. It is doubtful whether he had ever seen an
Indian; he was certainly entirely without mercantile experi-
ence ; yet he had for competitors shrewd and able men who had
spent practically their whole lives in the Indian trade.

The goods for the government trade must be bought in
the United States; the peltries secured in its conduct must be
sold here. This worked disaster to the enterprise in various

An Experiment in State Socialism 285

ways. From their long experience in supplying the Indian
trade the English had become expert in the production of
articles suited to the red man's taste. It was impossible for the
government buying in the United States to match in quality
and in attractiveness to the Indian the goods of the Canadian
trader. Even if English goods were purchased of American
importers, the factory system was handicapped by reason of
the higher price which must be paid. On the other hand the
prohibition against the exportation of peltries compelled the
superintendent of the trade to dispose of them in the Ameri-
can market. Experience proved that the domestic demand
for peltries, particularly for deer skins, did not equal the
supply; therefore the restriction frequently occasioned
financial loss. But there were further restrictions in the act
of 1806 which narrowed the choice of a market even within the
United States. That these restrictions would operate to
diminish the business and accordingly the influence of the
government trading houses is obvious.

Another group of restrictions worked injury to the factory
system through their failure to accommodate the habits and
desires of the Indian. To trade with the government the
Indian must come to the factory. The private trader took his
goods to the Indian. The red man was notably lacking in
prudence and thrift and was careless and heedless of the
future. He was, too, a migratory being, his winters being
devoted to the annual hunt, which frequently carried him
several hundred miles away from his summer residence.
Before setting out on such a hunt he must secure a suitable
equipment of supplies. Since he never had money accumu-
lated, this must be obtained on credit and be paid for with the
proceeds of the ensuing winter's hunt. The factor was pro-
hibited, for the most part, from extending such credit; the
private trader willingly granted it, and furthermore, he
frequently followed the Indian on his hunt to collect his pay
as fast as the furs were taken. In such cases as the factor did

286 M. M. Quaife

extend credit to the Indian, the private trader often succeeded
in wheedling him out of the proceeds of his hunt, leaving him
nothing with which to discharge his debt to the factor.

The greatest advantage, perhaps, enjoyed by the private
trader involved at the same time the most disgraceful feature
connected with the Indian trade. From the first association
of the Indian with the white race his love of liquor proved his
greatest curse. The literature of the subject abounds in nar-
rations of this weakness and the unscrupulous way in which
the white man took advantage of it. For liquor the red man
would barter his all. It constituted an indispensable part of
the trader's outfit, and all of the government's prohibitions
against its use in the Indian trade were in vain, as had been
those of the French and British governments before it. The
Indians themselves realized their fatal weakness, but although
they frequently protested against the bringing of liquor to
them, they were powerless to overcome it. The factor had no
whisky for the Indian ; consequently the private trader secured
his trade.

The remedy for this state of affairs is obvious. Either
the government should have monopolized the Indian trade, at
the same time extending the factory system to supply its
demands, or else the factory system should have been aban-
doned and the trade left entirely to private individuals under
suitable governmental regulation. The former course had
been urged upon Congress at various times, but no disposition
to adopt it had ever been manifested. The time had now
arrived to adopt the other alternative. As a resident of St.
Louis and senator from Missouri Benton was the immediate
spokesman in Congress of the powerful group of St. Louis
fur traders, who, like their rivals of the American Fur Com-
pany and, indeed, all the private traders, were bitterly
antagonistic to the government trading houses. Soon after he
entered the Senate Benton urged upon Calhoun, then secre-
tary of war, the abolition of the system. Calhoun, however,

An Experiment in State Socialism 287

entertained a high opinion of the superintendent of Indian
trade and refused to credit the charges of maladministration
preferred hy Benton. This refusal led Benton to open a
direct assault upon the system in the Senate. In this two
advantages favored his success : as an inhabitant of a frontier
state he was presumed to have personal knowledge of the
abuses of the system he was attacking; and as a member of
the Committee on Indian Affairs he was specially charged
with the legislative oversight of matters pertaining to the
Indians.

Benton believed and labored to show that the original
purpose of the government trading houses had been lost sight
of; that the administration of the system had been marked by
stupidity and fraud; that the East had been preferred to the
West by the superintendent of Indian trade in making pur-
chases and sales ; in short that the factory system constituted
a great abuse, the continued maintenance of which was desired
only by those private interests which found a profit therein.
In view of the circumstances of the situation his conclusion
that the government trading houses should be abolished was
probably wise; but the reasons on which he based this conclu-
sion were largely erroneous. His information was gained
from such men as Ramsey Crooks, then and for long years a
leader in the councils of the American Fur Company. This
organization had a direct interest in the overthrow of the
factory system. Its estimate of the value of the latter was
about as disingenuous as would be the opinion today of the
leader of a liquor dealers' organization of the merits of the
Prohibition party.

Benton's charges of fraud on the part of the superintend-
ent and the factors failed to convince the majority of the Sena-
tors who spoke in the debate, and the student of the subject
today must conclude that the evidence does not sustain them.
There was more truth in his charges with respect to unwise
management of the enterprise; but for this Congress, rather

288 M. M. Quaife

than the superintendent, was primarily responsible. It is evi-
dent, too, that in spite of his claim to speak from personal
knowledge Benton might well have been better informed
about the subject of the Indian trade. One of his principal
charges concerned the unsuitability of the articles selected for
it by the superintendent. But the list of items which he read
to support this charge but partially supported his contention.
Upon one item — eight gross of jews'-harps — the orator
fairly exhausted his powers of sarcasm and invective. Yet a
fuller knowledge of the subject under discussion would have
spared him this effort. Ramsey Crooks could have informed
him that jews'-harps were a well-known article of the Indian
trade. Only a year before this tirade was delivered the Ameri-
can Fur Company had supplied a single trader with four
gross of these articles for his winter's trade on the Mississippi.

Although Benton's charges so largely failed of substan-
tiation, yet the Senate approved his motion for the abolition of
the factory system. The reasons for this action are evident
from the debate. Even his colleagues on the Committee on
Indian Affairs did not accept Benton's charges of malad-
ministration. They reported the bill for the abolition of the
trading-house system in part because of their objections to
the system itself. It had never been extended to more than a
fraction of the Indians on the frontier; to extend it to all of
them would necessitate a largely increased capital and would
result in a multiplication of the obstacles already encountered
on a small scale. The complicated nature of the Indian trade
was such that only individual enterprise and industry was
fitted to conduct it with success. Finally the old argument
which had been wielded against the initiation of the system,
that it was not a proper governmental function, was employed.
The trade should be left to individuals, the government limit-
ing itself to regulating properly their activities.

Benton's method of abolishing the factory system ex-
hibited as little evidence of statesmanship as did that employed

An Experiment in State Socialism 289

by Jackson in his more famous enterprise of destroying the
second United States Bank. In 1818 Calhoun, as Secretary
of War, had been directed by Congress to propose a plan for
the abolition of the trading-house system. In his report he
pointed out that two objects should be held in view in winding
up its affairs : to sustain as little loss as possible ; and to with-
draw from the trade gradually in order that the place vacated
by the government might be filled by others with as little dis-
turbance as practicable. Neither of these considerations was
heeded by Benton. He succeeded in so changing the bill for
the abolition of the system as to provide that the termination
of its affairs should be consummated within a scant two
months, and by another set of men than the factors and super-
intendent. That considerable loss should be incurred in wind-
ing up such a business was inevitable. Calhoun's suggestions
would have minimized this as much as possible. Benton's plan
caused the maximum of loss to the government and of con-
fusion to the Indian trade. According to a report made by
Congress in 1824 on the abolition of the factory system, a
loss of over fifty per cent of the capital stock was sustained.

The failure of the trading-house system constitutes but
one chapter in the long and sorrowful story of the almost total
failure of the government of the United States to realize in
practice its good intentions toward the Indians. The factory
system was entered upon from motives of prudence and
humanity ; that it was productive of beneficial results cannot
be successfully disputed; that it failed to achieve the measure
of benefit to the red race and the white for which its advocates
had hoped must be attributed by the student, as it was by
Calhoun, "not to a want of dependence on the part of the
Indians on commercial supplies but to defects in the system
itself or in its administration." The fatal error arose from the
timidity of the government. Instead of monopolizing the
field of the Indian trade, it entered upon it as the competitor
of the private trader. Since its agents could not stoop to the

290 M. M. Quaife

practices to which the latter resorted, the failure of the experi-
ment was a foregone conclusion. Yet it did not follow from
this failure that with a monopoly of the field the government
would not have rendered better service to the public than did
the private traders. Lacking the courage of its convictions, it
permitted the failure of perhaps the most promising experi-
ment for the amelioration of the condition of the red man
upon which it has ever embarked.